Readers' comments

When you say real income I'm assuming you mean 'adjusted for prices' but I still wonder: did you take into account the price differences between states? If incomes were adjusted based on the national average rather than what is going on in each state then it looks like states with lower price inflation have much worse income growth than states with higher price increases. We all know that things are a bit more expensive in New York than in Ohio, it turns out that a dollar is worth more in some states than in others.

Let's look at a hypothetical example: if California experiences 3% annual inflation, above the average 2% for the U.S. as a whole, but Texas sees only 1% inflation over the same period, then wages would only need to rise 1% in Texas to maintain the same real purchasing power but they would have to rise 3% in California. So, in that case if Californians are seeing 2% annual wage increases and Texans are seeing 1.5% then at first it looks like California is keeping pace with the national average and seeing flat real incomes and Texas is seeing falling real incomes. But due to the different rates of inflation experienced in each state, slightly above or below the national average, Texans would actually be seeing rising real incomes and Californians would be seeing falling real incomes, once adjusted for local prices.

So I reiterate, was this analysis done with merely the national average prices or were regional price differences taken into account when calculating real income?

The link below shows a list of "right to work" states and "forced unionism" states. Cross reference to table above. The "right to work" states are seeing wage growth. The "forced unionism" states are seeing wages decline. The one exception: states with tons of government employees.

As the size of government grows, it saps wealth and incentive from the producers who drive increases in income. Taxes and regulations are imposed on the wealthy and on innovative who must pass these costs through in the form of higher prices; a sort of inflation which envelopes the entire population, making them all poorer.http://www.youtube.com/watch?v=FYc9r8vnunM

Yes, that's your theory. However, it seems to be a fact-free theory, as neither in your comment nor in your video do you bother to validate anything you say. The video shows a model of the economy that is simplistic beyond belief, ranting on about the evils of taxation without once mentioning the benefits. Even writers/actors/producers should be able to use facts to support their contentions.

Anyway, if your point is that taxing the rich punishes the masses, you must be hoping the American people are extremely uneducated and gullible.

So let's see your evidence that taxation creates wealth. If you're going to attack someone for not providing evidence, then you need to abide by the same principle and provide evidence for your position or against your opponents' position.

So, the city decides to soak the rich, increasing property taxes on "greedy" corporations like your grocery store or neighbourhood bank. Let's say taxes go up by $100,000 pa. Where SS, do you think that they will get that money? Pay employees and suppliers less, maybe lower quality for a while but after a while these companies have to raise their prices and the customers will have to pay these increased costs.
The wealthy demand a certain return on their investments; if they are forced into losing money to inflation or taxes, they find someplace more congenial to their investments.
The poor have to work at jobs that they can find, and pay the prices that the owners who have to set the prices at what they need demand. One must pity the poor schleps.

Don't know of too many "benefits" of my government, like wild irresponsible wars, paying folks not to work, subsidies for unworkable and unsustainable environmental schemes....that any sensible (sorry, the term was irresistible) citizen would approve of.

Taxation in itself inevitably creates distortions and destroys wealth, with the single exception of well-priced taxes on negative externalities (e.g. congestion charging or charges for polluting rivers). Taxation, in itself, reduces economic efficiency.

On the other hand, public spending can directly create enormous wealth, e.g. through provision of a high standard of universal education, through the combating of crime, through the alleviation of poverty (supporting human capital & also combating crime), through the negotiation of international free trade, through investment in transport, communications & power infrastructure, through the provision of an effective & fast court system with economically appropriate framing of properties, rights & obligations, etc.

A large part of public spending is better described as investment, and probably achieves substantial financial returns. Alongside technological progress, a large part in the growth of GDP/capita has been from improved human capital (much as with falling crime rates or rising life expectancy). Accumulation of household wealth has been an important factor; but so has been public spending.

That aside, there is an outrageous amount of waste in the public sector. Compensation levels are generally inappropriate (too low for the best workers, too generous for slackers), productivity is far too low, payrolls are probably far too large, etc.

But while the public sector may need radical reform to raise productivity and living standards, we shouldn't neglect that the outputs of the public sector have been (and are) real and massive.

Some level of taxation is obviously far more efficient than no taxation. The question is how much, how that tax should be structured for minimum negative economic distortion, and how we can lift productivity (and cut unnecessary activity) in the public sector to achieve necessary outputs with a minimal tax burden.

To equate wealthy and innovative is a major flaw in your theory - and don't regulations protect the aspiring innovator. Currently a great deal of innovation in the tech sector is open source - the costs are disappearing.

All free marketeers have always seen the need for minimal government to create order and protect life, liberty and property. But beyond that there is no evidence that the state does any good beyond what the private sector would have done with the tax revenue. You can’t look at just the good that the state does. Economists have to consider opportunity costs: what would the private sector have done with the money?

Most public spending is consumption, not investment. Most spending is simply transfer payments. Then the military takes up a huge chunk. The military plus transfer payments make up about 2/3 of federal spending.

They're battling straw men for the most part. All free marketeers see the need for minimal government. The argument has never been about government vs no government. Not at any time in history.

The debate is about minimal government vs intrusive government, as we have today. To show that intrusive government creates more wealth than minimal government, you would have to show the the private sector would invest the money less wisely than the state. I can't think of any evidence that shows the state uses funds more wisely than private actors. All of the evidence shows diminishing wealth for citizens as the state takes a greater share of the wealth.

Several studies are on the internet about optimal taxation. Just google the phrase and you'll see them. The average for those studies is 25% of gdp for all taxation, state, local and federal. Currently those governments take about 40% of US gdp.

"The great movement toward government has not come about as a result of people with evil intentions trying to do evil. The great growth of government has come about because of good people trying to do good. But the method by which they have tried to do good has been basically flawed. They have tried to do good with other people’s money. Doing good with other people’s money has two basic flaws. In the first place, you never spend anybody else’s money as carefully as you spend your own. So a large fraction of that money is inevitably wasted. In the second place, and equally important, you cannot do good with other people’s money unless you first get the money away from them. So that force – sending a policeman to take the money from somebody’s pocket – is fundamentally at the basis of the philosophy of the welfare state."

With any pragmatism, you wouldn't be advocating a minimal state. You'd be advocating an efficient level of state expenditure, activity and taxation.

Some people would even advocate that it is worth tolerating some inefficiency to make the income distribution more equitable or achieve greater equality of opportunity. Even without going that far, you would surely wish for the state to provide a good level of public goods where there are no market mechanisms to deliver (from fundamental science to enforcement of business contracts, to effective framing of the law to procuring roads and education).

I'm mostly behind you on the military and transfer payments. I'm confident that the US could achieve all domestic security objectives spending just 1% of GDP on the military (rather than 5% at present). I'd advocate lifting the social security pension age to 70 and then indexing it to life expectancy (rising by 8 months for every year that life expectancy rises). And I'd advocate a much tighter rationing of healthcare spending on old people - budgets should be redirected to providing universal healthcare for young people, and funding public health advocacy (where social, economic and life expectancy returns are far higher than with drugs for old people).

Aside from that, I'd argue that most public spending can be framed well as investment, in the sense that a dollar of public spending often avoids many dollars of damage that would otherwise arise in subsequent time periods (genuine value creation):
- That's the case with welfare transfers to the poorest, which is (demonstrated empirically) effective in reducing property crime rates.

- That's the case for fundamental science grants, which have given us solid state memory, lightweight batteries, the Internet, catalytic converters, wind turbines that are almost commercially viable, fracking (yes - the geology and engineering was developed with decades of federal grants), etc.

- That's the case with the legal system, where public funding for the courts built s system relatively free of corruption.

- That's the case with national parks, where entire millions of people benefit long term from well maintained and secure natural recreation space, but where transaction and management costs would be far out of proportion, making commercial provision non-viable (for now - technology might change this).

etc

Beyond that, there are ethical considerations in whether government should pay for disabled and old people to be looked after well (this is a non-commercially-insurable risk for a majority of affected people).

Overall, the US gets a bloody good deal from the federal government - which on net creates enormous value for the US economy. But, there's certainly enormous potential for lifting productivity and cutting costs in the federal government. And there's also enormous scope for cutting low-return transfer payment activity (especially churn, and especially that to the old, or that which is keeping people from working); and enormous scope for reducing volumes of military spending and volumes of legislative activity.

Arguing for a much smaller government, with far greater efficiency, far less waste, fewer transfer payments, less military and less bureaucracy - I'm fully behind you. Arguing for a less centralized, more transparent, better and more flexible/ customizable "user experience", I'm fully behind you too. Arguing for a "minimal" government however, is a little too ideological - it misses the very real value creation which most government activity and spending does in practice achieve.

You still ignore opportunity costs. What could private citizens have accomplished with the money the state takes? Every dollar the state takes is a dollar not available for private investment. Who does the better job of investing? Clearly the private sector does.

I disagree that state funding of research is better than private funding. Just because state-funded research has achieved some good doesn’t mean that private research would never have produced the same results. I think the amount of waste in state-funded research is much greater than the waste in private research. The history of the DOE is a perfect example. It has wasted trillions of dollars over the past 40 years.

Of course, the legal system is a necessary part of government’s role in protecting life, liberty and property. You need well-functioning courts, police and rational laws.

As for taking care of the poor and elderly, the US government has been engaged in a war on poverty since Johnson invented his “Great Society” in 1968, yet we see commercials on TV every day that 25% of children in the US go to bed hungry. Do you call that success? The state’s wars on drugs, poverty and education have produced disastrous results.

And what better way of helping the poor is there besides creating well-paying jobs, which the private sector does far better than the state?

In no way do I deny the opportunity costs involved in public spending - either from direct use of resources or through the distortions of tax on market prices. The costs are real and large.

Prohibitions on drugs and alcohol, I'd argue, are not the role of government. I find it hard to understand why anyone supports this kind of lunatic policy.

America's problems of poverty are precisely because transfer payments to lower income families are tiny. Federal spending goes to old people, the military and public schools - but not to kids (for things that matter - like a good diet, transport or access to social & educational amenities). The focus of (federal) public spending in the US is not on creating opportunities for kids with poor parents - it is gerontocracy and militarism.

And probably explains a large part of the differential in crime rates between the US and Europe. And the lower income mobility in the US viz-a-viz Europe. And lower median incomes, etc.

On research, obviously private research is better managed. There just isn't enough of it - the gains from progress are widely distributed, and go to competitors and consumers as well as the firm doing R&D. So for efficiency, a majority of research spending has to be public (unless we want a lower rate of economic growth). It'll always be less productive than the private variant - though real progress is needed in beating down the gap. Either way, we probably ought to be increasing science spending (as well as reallocating it). There's enormous potential for growth-boosting progress with high returns at the margin.

If state-funded research is less efficient than privately funded research, then the opportunity costs are higher for stat-funded research. Add back the amazing amount of waste and you have staggering costs!

Besides, how do you know there is not enough research? If much of the state-funded research is wasted, then it seems we're paying for too much research.

If DOE research is an example of efficiency in state funded research, then about 90% is waste. I don’t see why more waste is needed.

“America's problems of poverty are precisely because transfer payments to lower income families are tiny."

Transfer payments to lower income families have never been larger in history. Yes, they are a smaller portion of federal spending, but in inflation adjusted terms that spending is not tiny. Yet the problem is worse today than when we began the war on poverty. Besides, Europe’s poor are worse off than the poor in the US and they transfer a lot of their income to the poor. For example, if you define the poor as the bottom quintile, then the poor in Europe are much poorer than the poor in the US because the US median is much higher than that in Europe.

“And probably explains a large part of the differential in crime rates between the US and Europe. And the lower income mobility in the US viz-a-viz Europe.”

We have already had this discussion. The success of *some* low*er*-tax countries cannot be disputed any more than that of *some* high*er-tax countries.

Unsurprisingly, the democratic debate, such as it is, in most advanced countries lands somehwere in the middle, and the dial moves slightly between left and right as collective conscience evolves over time.

The opportunity cost of government funded research is not private research - it is whatever bundle of consumer goods people would buy if that tax revenue hadn't been raised.

At the margin, there's enormous potential for doing additional scientific research and accelerating technical progress. For instance:
- there is intense competition for funds to do pure mathematics/ solve math problems. We have far fewer Phd/ training/ research positions than would be ideal. Similarly with algorithmic research, machine learning research, etc. This is all non-patentable, and doesn't receive enough private or public funding.

- there would be enormous returns from more public funding of compiler development, IDE development, etc.

- there would be enormous potential returns from additional public funding of materials research, battery research, etc.

The list is long. There is much that could be done - much of which would result in large private sector investment and productivity growth in the following decades. Trouble is, the benefits are diffuse, accruing to the whole private sector - and so there aren't the funds to support a socially optimal (or anything close) level of research & development.

The biggest inefficiencies are in communication - among researchers, and between researchers and business. That needs to be tackled.

But public spending on research is, on average, far more efficient than failing to raise taxes. It must become more productive and better targeted, but we also need more of it if we want economic growth.

(My business is entirely private sector and hasn't got a dime from the government - but none of the technologies it uses would exist if it weren't for recent government funded research activity.)

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The "poor" of Western Europe are far more affluent than the poor of the US. Check out the OECD median PPP wages and wages by wage income decile. The third wage decile and below are richer in the UK, Germany, France, Netherlands, Belgium, Austria, Switzerland, Denmark, Sweden, Finland, Norway and Ireland than in the US.

And across Europe, even in Spain, Greece and Slovenia, life expectancy is longer than in the US. Northern Europe beats the US in Pisa studies, and almost every European country shows greater income mobility than the US.

... life expectancy probably is one of the strongest measures of quality of life. Especially for the poorest, it is determined by absence of severe stress, access to a good diet, quality shelter, good social connections and an acceptable level of material wealth. (Though good public health, preventative medicine and emergency healthcare access matter too.)

Congratulations on cherry-picking a bad study. It ain't just murders - the US has far higher violent crime rates than all other developed countries, as almost every study on the subject finds, and as official data make quite clear.

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Overwhelmingly, markets (preferably with minimal regulation or taxation to allow for price signals to work well) are the best tool for executing innovation and delivering productivity growth - facilitating rising living standards.

But, for any given level of technology, there is some level of government activity which can yield sufficiently high returns to justify taxation. That might include vaccination programmes. That might include cycle paths or government promotion of healthy eating. If the social and economic returns are high enough, that can (and in practice, almost certainly does for a large amount of government activity) out-weight the opportunity & efficiency cost of higher taxation.

Within that mix, the components closest to my hearth are science, mathematics, statistics and algorithms. We need to increase public spending in this area by an order of magnitude - this is the basis for so much automation (of factories, of mines, of ships & ports, of cars), for so many new services (from mobile banking to price discrimination for businesses), for advances in medicine, for new products, etc.

The innovation and delivery is done by the market, but the math, science and algorithms is done mostly by volunteers today - with potential for vastly increased output & growth if there was enough money to take mathematicians, researchers & developers away from competing (less productive) day jobs.

Just to be clear: I am a radical libertarian, in the sense that I want only the level of government activity which has robust empirical justification, where that justification takes opportunity costs and price distortions into account.

I want a radically smaller state than we have today.

I want the military to shrivel, I want police forces and prisons to lose 90% of their budgets (with legalisation of drugs, alcohol, gambling, prostitution and many other victimless crimes), don't have much compassion for pensioners, I want workfare rather than welfare, and I'm even inclined to be stingier with disabled people.

But "minimal state" is too ideological, and would probably condemn us all to much lower living standards, lower rates of productivity growth and less business profit. Tax can be a good thing when it is efficiently implemented (i.e. implemented in the least bad way), and where the revenue is applied to an activity with sufficiently high returns.

In practice, we probably both agree on almost all individual policy questions. Just that you have a well defined end-game that I wouldn't support (we'd all be worse off).

The one policy area where we really seem to disagree - it would seem - is in science & research. There, I do want deep reform:
- I want all government funded research (complete with presentation videos, discussion forums, source code, associated notes, etc alongside papers) to be openly published online. There must be much greater further emphasis on effective communication of research (for application, for extensions, for criticism and for development).

- I want a shift away from tenure, and away from academia. Rather, I'd like to see far more x-prizes, prizes for solving known mathematical problems, prizes for pushing forward knowledge frontiers in particular areas, prizes for developing new materials, etc. We need far more emphasis on payment by results.

- I want all applications for funding to be open, online, and subject to public criticism. All proposed projects should receive support from private businesses and the public, before receiving government funds. Any criticism should be objectively considered before funds are dispensed.

Universities eat too many resources, and don't give enough in return. Far too much goes to administration, and covering the construction, maintenance, depreciation and operational costs of vast campus empires. That's mostly waste. What we do need, is far more funding for people to do quality research. That means funding should be paid for people and outputs, rather than to universities or to cover research costs. And tenure should go - workers must become more mobile, and research groups more fluid.

But despite the obvious need for reform, there's still overwhelming potential to put additional resources to productive use - we need effort in both directions, if we want to live longer and richer.

I realize you think some research is important, but what if I don't? Why should you be allowed to take my money and spend it on what you think is important instead of letting me spend it on what I think is important?

That's especially important when I know that some good may come of your research but only in addition to enormous waste. Government wastes research money because bureaucrats have different incentives from those of owners. If you read about Buchanan's public choice of politics, you realize that no one in government in looking out for the public interest; they're looking out for their own interests. That's not ideology; it's well documented political theory.

If the research you mention is so important, then you shouldn't have any trouble persuading enough wealthy people to fund it. And profit doesn't matter. Bill Gates and Warren Buffet have given billions to charity; shouldn't be hard to persuade them to give some to research.

The very fact that you have to use the power of the state to force people to give to the research proves that most people don't think it is very important, else they would voluntarily give to it.

You fall for the fallacy that socialists preach that says if the government doesn't do something it won't get done. But there is a vibrant private sector. People are doing good things all of the time without state coercion.

So you can't say that something would never exist had the government not done it. There is very that the government has done that the private sector could not have done and done better with less waste.

And you accuse me of cherry picking? Why do you pick a few nations and not all of Europe? Why the third decile and below? The poor are almost universally considered the bottom decile. And for Europe as a whole, they are poorer than the bottom decile of the US.

If you want to pick a few individual nations and compare them with the US, then I should be allowed to pick a few individual states and compare them with your list of countries. It would be easy to find a similr number of US states that are much wealthier than the individual countries you mention. Compare apples with apples. You're doing the cherry picking here.

I wrote that the US poor are wealthier than European poor. Quality of life is in the eye of the beholder. You may prefer that as a measure of welfare, but few economists do. The only objective measure of welfare is per capita gdp adjusted for cost of living.

Yes, that is true because usually we compare the US and Europe, but the differences between us are very small. Small differences aren't going to produce large results.

China and India have been good lab experiments. In a generation they have lifted over 500 million people out of starvation poverty to relative wealth. That has never before happened in the history of mankind. Those two are responsible for cutting the poverty rate in the world in half.

How did they do it, with greater taxation and redistribution of wealth? No. They had tried that for 50 years and only grown poorer. Over 30 million Chinese starved to death in the 1960's.

They achieved that economic miracle by slightly freeing their markets and respecting property more. That's all they did.

"Congratulations on cherry-picking a bad study. It ain't just murders - the US has far higher violent crime rates than all other developed countries, as almost every study on the subject finds, and as official data make quite clear."

Actually, I picked the University of Leiden study because it uses the same criteria for crime for all countries. No other study does that. Comparing official statistics between countries is senseless because each country uses different criteria for counting crime. The Leiden study is not bad; it is the world's most respected international comparison of crime.

Perhaps I should have written more clearly in the above posts - we seem to be talking past each other rather too much.

On European wage deciles, I mean that for all the countries mentioned, for every one of the 1st, 2nd & 3rd wage deciles (individually considered), PPP wages are higher in the European countries than in the US. That's mostly down to much higher wage inequality in the US (whatever the forces, institutions and economic factors that cause this).

It isn't really cherry-picking - that's a list of every West European country, except for the South (which didn't industrialize until the 20th century, and was mostly run by dictatorships until the '70s). Southern Europe and Eastern Europe aren't the bits anyone would aspire to (except perhaps food, weather and fashion). That's changing - there is institutional and economic convergence. But it will take decades.

In any case, that doesn't really prove much - only that a good set of institutions and economic context is able to largely eliminate material poverty (which was actually visible when I lived in the US, but isn't here).

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Clearly, all public spending must be well justified, even accounting for the impact of tax distortions.

In my mind, that implies a far smaller state, with far less regulation or interference. We should certainly seek to replace state actors with free markets where this can be done efficiently, e.g.:
- if all vehicles were to report their positions at all times, it might be possible to privatize roads
- the state should certainly seek to mobilize both philanthropy and corporate activity towards research (through tackling coordination problems, information problems and contract problems that obstruct this activity)
etc

But externalities matter. So does risk. Research, with extremely high positive externalities (funders rarely capture much of the benefit) and extremely high risk (pure VAR), is hit badly - and nothing like the socially optimal amount will ever be supported by free people in free markets.

If we want more technological progress (with high average returns over marginal investments), we probably ought to recognize these intrinsic failing in markets, and mobilize additional resources through taxation. That doesn't necessarily mean bureaucrats managing funds - we can subsidize private research activity & philanthropy, and have popular online votes on which research activity needs funding. But without the collective compulsion to contribute, we will enjoy less productivity and income growth than could have been realized.

The US south didn’t industrialize until after WWII, either. The fundamental principle of comparison in statistics is that the sample sizes be relatively close. The population of the US and EU are fairly similar. So you should compare the entire EU with the US. If you’re going to pick just the richest nations in the US for comparison, then you should compare them with the riches US states in order to follow the principles of statistics.

You don’t need to track every vehicle for roads to be private. Many schemes are possible, but the simplest is toll roads.

There are no roadblocks to private funding of research except the burden of taxes. Remember that Galileo and many early scientists were funded by rich people who rarely gained financially from the research. All charity is all externality for the giver but that doesn’t stop charitable giving.

I’m sorry but I don’t think you know what the socially optimal level of research is. All we can say for sure is that the current level is too much research because most of the state funded research is a complete waste.

When did the state begin funding research in the US? Hardly any state funding took place before WWII, so how did we make the progress from the founding until then? Our own history demonstrates that private funding of research produced the greatest progress than we have ever seen.

There are no principles of statistics relevant here. Selection bias is a good criticism of almost any international comparison. Yet the simple observation that there are many countries where the poorest are richer than in the US, and which also have a larger state. That doesn't prove anything - only that prosperity doesn't require a small state or low tax levels (certainly, there are enormous trade-offs, and it's certainly an open question whether particular state interventions are wealth-creating or wealth-destroying).

No - any optimal level can't really be defined.

I like your narrative - I just don't think it's realistic. Abolish government research funding, and philanthropists will not rush to fill the gap: we'll just have to tolerate fewer math proofs (e.g. no kernal methods - fewer industrial robots and a slower internet), etc.

If we can demonstrate a good alternative to public funding (which also provides a sufficient volume of output), then great - once that's empirically demonstrated, I'd be comfortable cutting science funding. But not until there's some level of confidence. This is something that could be trialled on a state-by-state basis - for sure. But policy shifts in research funding should be incremental and evidence based rather than ideology driven.

History isn't conclusive. The academic, scientific and technical dominance of 19th & early 20th century Germany was driven by Prussian state funding - and Germany was the world's largest economy in 1913 (only narrowly thanks to a US recession). Germany was on a high growth path until the war.

And it with WWII and the expansion of public funding for academia, modern mathematics, modern physics, computing, etc were essentially created. That funding and activity hadn't happened in the US/ UK/ France before WWII. It had happened (to a lesser extent) in Germany. We've made more mathematical and scientific progress (internationally) in the past 20 years than in the previous 200. And that's having an impact on every aspect of our lives - as consumers and businesses (with computing, robotics, statistical & AI methods, chemistry, materials, manufacturing methods, data processing components, communications, etc). Some of it would happen without government funding - but how much?

Taking your narrative from libertarian and classical economics, we only have to look back at the origins. France was the leader in classical economics, and throughout the 19th & early 20th century enshrined laissez-faire principles. France maintained the lowest tax rates, maintained completely open borders (to people, to capital, to goods & services), and followed the principles of a minimalist state who's only purpose was to defend the law & property rights.

France followed libertarian principles - tolerating complete sexual freedom, complete religious freedom, prostitution, alcohol, child labour and no obligation for kids to go to school. The French narrative is that this institutional framework failed viz-a-viz Bismarck's (statist) Germany or the protectionist and trade union dominated US/ UK (as was the case in the late 19th & early 20th century).

Ideally, the world would just work (efficiently!) without much need for collaboration, organisation through government and without much taxation.

We can pursue incremental policies in that direction, and hope that this ultimate goal can be fulfilled. But significant policy changes have to be tested empirically, for their impact on productivity growth and living standards. The world just isn't as simple as the models we use to describe it.

"Abolish government research funding and philanthropists will not rush to fill the gap."

Well, it might if tax credits were given for investment in such scientific/theoretical activities--but the bureaucrats and politicans would never stand for it because they like to control and take credit. So if one assumes that the savings would not be returned to the private sector, then it may be safe to assume the private sector won't take up the slack.

But this is all theoretical. By mid-century CBO estimates that Medicare and Social Security alone will consume all of what the government collects--assuming revenues remain constant as a share of GDP. Not sure if those estimates assume continued deficits (and thus, an increasing share of revenues bleeding away to debt service). I'm guessing they don't have much in the budget to deal with climate change mitigation either...

Tax credits are a form of subsidy - just another way of structuring public research funding. Perhaps more efficient - but that's an empirical question.

You've got the nail on the head with your last point: at minimum, we simply must lift average retirement ages (and social security eligibility age) in line with life expectancy, in order to limit growth of unfunded government liabilities (and collapse of tax revenues relative to consumption).

We also need much tighter rationing on public funding for elderly healthcare. If you want designer drugs or very expensive surgery, the onus should be on you to save for it and buy insurance for your old age. If society wants, public funds can be used to provide a decent minimum level of care for all - but then that has to be tightly rationed for maximum health bang/$ (yes - "death panels") in order to limit the burden on our freedom.

That argument only holds water in a closed system. It does not stand up when the wealthy can instantaneously take gains and transfer them to oversea holdings and interests. If the overall cost of taking that money and putting it in Interests say in Singapore is less expensive than keeping it in the US, than that money and those jobs are going elsewhere. The world is flattening, unfortunately, that flattening involves lots of low wage labor.

Household income is the wrong metric. Ageing means that pensioners are a larger share of households than ever, while lower rates of cohabitation mean that there are fewer households with two wage incomes than at any time since WWII.

A far better measure of living standards would be median individual income for adults. And similarly when considering productivity/ reasonable expectations of wage income, we would be better looking at median net wages.

Certainly, things don't look good. But these other metrics look much better than household income.

From 1990 to 2011, mean real wages are up 28.8%. Not as good as 55.9% in Ireland or 37.4% in Sweden but better than 24.3% in France and much better than Japan's 4.9%.

But yes, the wage distribution has become far more unequal in the the US, far more rapidly than elsewhere (see the shifting earnings decile ratios in the above link), so real median wages have substantially under-performed Western Europe.

Note: these are 2011 average (mean) nominal wages at market exchange rate, not adjusting for consumer prices and not adjusted for hours worked.

Clearly, there is enormous potential for lifting real living standards in the top bunch, if they can lift domestic productivity/ cut costs to US levels (that might be hard to do - part of the reason for consumer prices in the US, is a large underclass - mainly immigrants - working very long hours for very little pay).

Note also that there has been a massive shift of manufacturing from European countries in the second block to Eastern Europe (no wonder - see the nominal wage differentials; see the lower tax rates; there is a single market now). Germany has kept nominal wages flat for over a decade just to reduce the pace of decline in manufacturing activity, as German firms have shifted capacity Eastwards. (In Germany, wage income is now well under 60% of GDP; in the US it's around 80%.)

As German unemployment falls and labour markets tighten, the pace of wage growth is set to accelerate (Germany could rise quite quickly up this list), while the pace with which manufacturing shifts to Eastern Europe is likely to accelerate (lifting productivity and moving the bottom group of countries up into the second group).

If you want a really high standard of living, the key is to earn your wage at the top of the top group (e.g. Switzerland or Norway) and spend your money at the bottom of the bottom group (Hungary or Poland... or indeed Bulgaria).

Ukraine's an option too - even cheaper. But perhaps not the best place to buy a house/ have a bank account/ run a business from...

Of course, it's wrong to give too much weight to mean wages. Hardly anybody earns the mean. The far higher dispersion in US wages, and the far higher skills premium at the top, make the US potentially much more attractive for ambitious professionals. That said, the countries above the US in the above list might be less cut-throat places to start a business with better margins & make juicy profits.

I'm very familiar with employment stats for New England. I've received the Fed's regional reports for decades. MA has lost as much manufacturing as anyone if you look at percentage lost versus what was. But MA has added a lot of service jobs. These are driven by two areas: finance and health. Those two then drive other services.

Finance is the explosion of the mutual fund & investment business. Not banking in MA. More of a retail fund center with Fidelity, Mass Mutual and some others. I should include the insurers like John Hancock because they are essentially investment companies.

Health has been driven by a bunch of factors. The explosion in research money. The concentration of that in Boston, which is a natural medical cluster given the schools located here. The growth of health insurance - which has made cost control difficult because Boston is more expensive, not less though there is more "market" competition for medical services here than in almost anywhere else.

NH growth has been driven by Boston. It became a commuter area a few decades ago as employment built north of Boston. You can as easily drive from NH to a job north of Boston as from any suburb into any city. (As a note, the Boston Fed has done some nice research into NH's social spending. Over 80% of the difference - meaning they spend less - is demography, not policy.)

RI has lost manufacturing. VT has lost rural livelihoods. CT has lost manufacturing but has made up for that with services growth in the west of the state.

The poor, disabled, young, working class families with children self deport from NH to the surrounding States for economic reasons. Welfare policy in NH drives NH demographics, but it can't work for the nation because Canada and Mexico won't accept the 100 million people that fall in the demographic who self deport from NH.

NH has become more blue than red because its tax policy based on welfare policy draws in the wealthy working class from other States with welfare policy that made them wealthy enough to live in NH. They can afford the excessively high property taxes, but their kids can't afford to live in NH because their wages aren't high enough to pay the high property taxes, but by self deporting to Mass, the kids get health care they can't afford in NH, good schools they can't afford in NH, affordable in-state tuition at great public colleges that can't afford in NH, all because the income taxes plus property taxes are less than the NH property taxes.

These income figures need to be taken with a boulder of salt because household composition has changed dramatically in that same period. We have many more households with single mothers as the only income earner than before. That alone will cause a drop in median income per household.

Still, the Midwest is has traditionally been the center of manufacturing, so its relative decline should be another voice added to the chorus screaming that federal regs and taxes have been killing manufacturing.

"Still, the Midwest is has traditionally been the center of manufacturing, so its relative decline should be another voice added to the chorus screaming that federal regs and taxes have been killing manufacturing."
Hey, what's that country whose next leader is on the cover of this week's print magazine? Some backwater in East Asia, isn't it?

We need to mindful of demographic changes as well. Take Texas, for instance. In 2000, 32% of the state's population is Hispanic. By 2010, this has risen to 38.1%. In twenty years, the number of foreign-born residents has gone from 1.5 million to just under 4.0 million. The increase in the number of poorer households drags the average down. This doesn't mean that the average household from 1990 has made little economic progress.

Another thing that can skew the numbers is uneven inflation across the country. The disparity in cost of living between different states has been growing larger and larger. Since real income is calculated using a single deflation, places where price increases are outpacing the national average will see higher "real" income growth. Conversely, the real income growth will look stagnate in the Midwest, depressed by a denominator larger than it ought to be.

So you are saying that fed regs and taxes kill ONLY manufacturing and not service jobs?

BTW.. Ohio changed its tax on businesses - which punished manufacturing more than services - under Gov. Taft in June of 2005.

(See: Taft, Commercial Activity Tax)
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Methinks people forgot about the downsizing of the automobile industry,
which shows Ohio going from under -6.4% to -16.2% and Michigan going from -13.9% to -21.4%

So you are saying that fed regs and taxes kill ONLY manufacturing and not service jobs?

BTW.. Ohio changed its tax on businesses - which punished manufacturing more than services - under Gov. Taft in June of 2005.

(See: Taft, Commercial Activity Tax)
--
Methinks people forgot about the downsizing of the automobile industry,
which shows Ohio going from under -6.4% to -16.2% and Michigan going from -13.9% to -21.4%

So you are saying that fed regs and taxes kill ONLY manufacturing and not service jobs?

BTW.. Ohio changed its tax on businesses - which punished manufacturing more than services - under Gov. Taft in June of 2005.

(See: Taft, Commercial Activity Tax)
--
Methinks people forgot about the downsizing of the automobile industry,
which shows Ohio going from under -6.4% to -16.2% and Michigan going from -13.9% to -21.4%

I'm not endorsing fundie's viewpoint, but jobs connected with regulatory compliance are classified as service. You therefore would not see the same impact in the statistics. A service job that disappears as a result of unnecessary regulations would likely reappear as a job of someone enforcing those regulations.

Many of those new Hispanics in Texas made far less when they lived in Mexico.

I suspect a cohort study of income differences between current residents of Texas and those same people's income 10-20 years ago (regardless of where they were living then) would indicate a large increase!

What I want to know is what happened to NH that hasn't happened to VT? The two basically seem like the same state (I'm probably showing my ignorance here), but I can't really fathom how it's possible that one state outperformed everyone else and its immediate neighbor is doing so poorly. Unless NH is just stealing share from VT, or that VT has bad governance and NH good governance.

They're nowhere near the same state. The southern part of NH contains a large portion of exurban Boston, and a lot of older mill towns that lost most of their manufacturing jobs in the Great Depression (if not earlier) and are much further down the path to self-reinvention than similarly sized cities in the Midwest.

VT is much more remote and its economy is heavily dependent on dairy farming--which has gotten killed in the Northeast in the past 20 years by competition from California and Oregon.

Thanks for the clarification. I mostly interact with the two states through ski trips, and for that purpose VT has always seemed comparatively developed; the dairy farming element is an interesting one.

Northern NH, where the ski resorts are, is a very isolated place. Other than tourism and spillover effects from the presence of Dartmouth College (which isn't even very far north in the state), I'm not sure if there's much of an economy up there beyond maple syrup. By comparison, VT's population is more evenly distributed throughout the state. So, if you were comparing all of Vermont with just the northern half of NH, it'd be easy to think that VT is much more developed.

Also, I'm kinda surprised to see the stagnation in Utah in 1999-2007. The state is a capitalist's dream, with minimal regulation, low taxes, and a well-educated workforce that really doesn't want to leave. (In my 30 years as a Mormon who has never lived in Utah, I have found that the determination of Utah expats to get back to "Zion" from "the mission field" compares well to salmon swimming upstream to spawn.) Still, I would have thought that female labor force participation would have grown over that period, which was a relatively liberal one in the history of Mormonism.

Of course, what might have happened is that men's incomes dropped outright even as women brought more into their households, which is basically what happened in the US as a whole during the '80s.

Utah is a state with a young population. The median age is 28.8. In New Hampshire it's 41.2. When people first enter the workforce they tend to earn less. The drop in median income might simply be a demographic effect.

Mormons are also healthier than other Americans in general. That, along with the younger population, means that growth of the health care industry, with its many high-paying jobs, isn't as rapid there as other states.

So the states that have the broadest-based prosperity gains are those based either on extractive industry (ND, WY, OK), agriculture driven by the ethanol mandate (NE), those dominated by rent-seeking (DC, VA), or those that were so poor to begin with that they had nowhere to go but up (AR, WV). At least MA and NH, which receive minimal federal largesse and have highly educated populations, were able to experience broad-based growth. Still, that's pretty depressing.